Algeria’s Economic Reforms Garner IMF Applause: 4.2% Growth in 2023, Forecast Projects 3.8% for 2024
BY: Dr. Hana Saada
ALGIERS- The International Monetary Fund (IMF) has affirmed its positive short-term forecasts for the Algerian economy while commending the government’s dedication to reforms aimed at stimulating investment, enhancing budget transparency, and combating corruption. Following its final conclusions on consultations held last December under Article IV of the Fund’s statutes, the IMF’s Board of Directors announced through an official statement that Algeria’s economy grew by 4.2% in 2023, a robust performance driven by a resurgence in hydrocarbon production and strong showings in the industry, construction, and service sectors.
Algeria’s economy, notes the Fund, was still recovering from the COVID-19 pandemic when the fallout from the war in Ukraine and recurrent droughts led to increased inflation, while elevated international hydrocarbon prices boosted public revenues and exports. Despite these challenges, Algeria’s external financial position remained robust, with a current account surplus recorded for the second consecutive year. However, inflationary pressures persisted, primarily due to high food prices, while the budget deficit widened, albeit less than projected in the revised 2023 budget due to relatively slow execution rates.
Maintaining Growth and Curbing Inflation
In the short term, the IMF believes that Algeria’s economic prospects “are generally positive,” although inflationary pressures remain a concern. Real economic growth is expected to remain strong in 2024 at 3.8%, partly supported by significant budgetary expenditures. Meanwhile, the pace of inflation is anticipated to start slowing from the current year, particularly due to a decline in prices of fresh food products. The IMF forecasts a gradual reduction in inflationary trends, with the average rate expected to decrease from 9.3% in the past year to 7.6% in 2024, further declining to 6.4% in 2025, 6.1% in 2026, 5.5% in 2027, and reaching 5.2% and 5% respectively in 2028 and 2029.
Medium-Term Economic Outlook and Risks
Looking ahead, the IMF suggests that Algeria’s overall medium-term economic outlook will depend on efforts to diversify the economy and attract private investment. The Fund highlights potential risks related to volatility in international hydrocarbon prices, significant budgetary needs, growing public debt, and possible extreme weather events that could affect the economy and state budget. However, sustained, bold structural reforms and concerted efforts to diversify the economy, improve the business environment, attract investments, and explore new export markets could further boost growth and job creation.
Budgetary Sustainability and Banking System Resilience
While acknowledging “Algeria’s strong and sustainable growth and its external financial position, despite multiple economic challenges,” the IMF Directors nevertheless recommended a gradual rebalancing of fiscal policy to help preserve fiscal space and improve the sustainability of public finances. In this regard, the Fund advocates for reforming energy subsidies while ensuring targeted support for the most vulnerable and maintaining social equity. It also calls for a proactive tightening of monetary policy through an increase in the policy rate and reserve requirements, combined with ongoing liquidity absorption, to support anti-inflationary policies.
Overall, the IMF’s Board of Directors highlighted “the Algerian authorities’ commitment to medium-term fiscal sustainability,” while emphasizing the importance of “continuing structural reforms to improve the business environment, support the participation of youth and women in the labor market, and promote diversified, green, and private-sector-led growth.”
Additionally, the Fund underscored the need to improve statistical systems with IMF support to better inform public policy formulation. Furthermore, the IMF Directors also welcomed the adoption of the new monetary and banking law aimed at modernizing financial markets, the strengthening of the AML/CFT framework (anti-money laundering and combating the financing of terrorism), and the resilience of Algeria’s banking system. They called for strengthened banking supervision, monitoring of non-performing loans, and consolidation of governance in banks and state-owned enterprises to reduce systemic risks posed by intertwined economic and financial links between the government, companies, and public banks.
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